<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CISCO SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE> 2
CISCO SYSTEMS, INC.
OCTOBER 7, 1996
TO THE SHAREHOLDERS OF CISCO SYSTEMS, INC.:
You are invited to attend the Annual Meeting of Shareholders ("Annual
Meeting") of Cisco Systems, Inc. (the "Company") which will be held at the
Company's headquarters located at 255 W. Tasman Drive, San Jose, California
95134-1706 on Friday, November 15, 1996, at 10:00 a.m.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting and Proxy Statement.
If you do not plan to attend the Annual Meeting, please sign, date, and
return the enclosed proxy promptly in the accompanying reply envelope. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you may
do so automatically by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
John T. Chambers
President and Chief Executive Officer
San Jose, California
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested to
complete, sign, and date the enclosed proxy as promptly as possible and return
it in the enclosed envelope (to which no postage need be affixed if mailed in
the United States).
<PAGE> 3
CISCO SYSTEMS, INC.
170 W. TASMAN DRIVE
SAN JOSE, CALIFORNIA 95134-1706
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 15, 1996
The Annual Meeting of Shareholders ("Annual Meeting") of Cisco Systems,
Inc. (the "Company") will be held at the Company's headquarters located at 255
W. Tasman Drive, San Jose, California 95134-1706, on Friday, November 15, 1996,
at 10:00 a.m. for the following purposes:
1. To elect nine directors of the Board of Directors to serve until
the next Annual Meeting and until their successors have been elected and
qualified;
2. To approve the implementation of the 1996 Stock Incentive Plan;
3. To approve an amendment to Section 2 of Article III of the
Company's Amended and Restated Bylaws to increase the minimum number of
directors to seven (7) and the maximum number of directors to thirteen
(13), with the exact number of directors to be fixed from time to time
within such range by a duly adopted resolution of the Board of Directors or
shareholders;
4. To ratify the selection of Coopers & Lybrand L.L.P. as the
Company's independent accountants for the fiscal year ending July 26, 1997;
and
5. To act upon such other matters as may properly come before the
meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The record date for determining those
shareholders who will be entitled to notice of, and to vote at, the meeting and
at any adjournment thereof is September 20, 1996. The stock transfer books will
not be closed between the record date and the date of the meeting. A list of
shareholders entitled to vote at the Annual Meeting will be available for
inspection at the offices of the Company.
Whether or not you plan to attend the meeting, please complete, date, sign,
and return the enclosed proxy promptly in the accompanying reply envelope. Your
proxy may be revoked at any time prior to the Annual Meeting. If you decide to
attend the Annual Meeting and wish to change your proxy vote, you may do so
automatically by voting in person at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Larry R. Carter
Secretary
San Jose, California
October 7, 1996
<PAGE> 4
CISCO SYSTEMS, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Cisco Systems, Inc., a California
corporation (the "Company"), for the Annual Meeting of the Shareholders (the
"Annual Meeting") to be held at 10:00 a.m. on November 15, 1996, at the
Company's headquarters located at 255 W. Tasman Drive, San Jose, California
95134-1706, and at any adjournments or postponements of the Annual Meeting.
These proxy materials were first mailed to shareholders on or about October 7,
1996.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
VOTING
The Company's Common Stock is the only type of security entitled to vote at
the Annual Meeting. On September 20, 1996, the record date for determination of
shareholders entitled to vote at the Annual Meeting, there were shares
of Common Stock outstanding. Each shareholder of record on September 20, 1996,
is entitled to one vote for each share of Common Stock held by such shareholder
on September 20, 1996. Abstentions and broker non-votes are counted as present
for the purpose of determining the presence of a quorum for the transaction of
business. In the election of directors, the nine candidates receiving the
highest number of affirmative votes will be elected. Proposals 2 and 4 each
require for approval (i) the affirmative vote of a majority of those shares
present and entitled to vote, and (ii) the affirmative vote of a majority of the
required quorum. Thus, abstentions and broker non-votes can have the effect of
preventing approval of a proposal where the number of affirmative votes, though
a majority of the votes cast, does not constitute a majority of the required
quorum. Proposal 3, the amendment of the Bylaws, requires for approval the
affirmative vote of a majority of the outstanding shares of the Company's Common
Stock.
PROXIES
Whether or not you are able to attend the Company's Annual Meeting, you are
urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your proxy
when properly completed. In the event no directions are specified, such proxies
will be voted FOR the nominees of the Board of Directors (proposal 1), and FOR
proposals 2, 3, and 4 and in the discretion of the proxy holders, as to other
matters that may properly come before the Annual Meeting. You may revoke or
change your proxy at any time before the Annual Meeting. To do this, send a
written notice of revocation or another signed proxy with a later date to the
Secretary of the Company at the Company's principal executive offices before the
beginning of the Annual Meeting. You may also revoke your proxy by attending the
Annual Meeting and voting in person.
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the proxy,
and any additional soliciting material furnished to shareholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such
<PAGE> 5
beneficial owners. In addition, the Company has retained Corporate Investor
Communications, Inc. ("CIC") to act as a proxy solicitor in conjunction with the
Annual Meeting. Under the terms of an agreement dated August 13, 1996, the
Company has agreed to pay $12,000.00 to CIC for proxy solicitation services plus
an additional $3.00 per nobo and registered holder contact as well as
reimbursement for reasonable expenses, including freight and courier services.
The orginal solicitation of proxies by mail may be supplemented by a
soliciation by telephone, telegram, or other means by directors, officers, or
employees of the Company. No additional compensation will be paid to these
individuals for any such servicesx. Except as described above, the Company
does not presently intend to solicit proxies other than by mail.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
The names of persons who are nominees for director and their positions and
offices with the Company are set forth in the table below. The proxy holders
intend to vote all proxies received by them in the accompanying form for the
nominees listed below unless otherwise instructed. In the event any nominee is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who may be designated by the present Board
of Directors to fill the vacancy. As of the date of this Proxy Statement, the
Board of Directors is not aware of any nominee who is unable or will decline to
serve as a director. The nine (9) nominees receiving the highest number of
affirmative votes of the shares entitled to vote at the Annual Meeting will be
elected directors of the Company to serve until the next Annual Meeting and
until their successors have been elected and qualified. Shareholders may not
cumulate votes in the election of directors pursuant to an amendment of the
Company's Restated Articles of Incorporation, which amendment became effective
in January 1990.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HELD
NOMINEES WITH THE COMPANY
- ------------------------------------- ----------------------------------------------
<S> <C>
John T. Chambers..................... President, Chief Executive Officer, and
Director
James F. Gibbons..................... Director
Edward R. Kozel...................... Chief Technology Officer and Director
Richard M. Moley..................... Senior Vice President, Wide Area Business Unit
and Director
John P. Morgridge.................... Chairman of the Board
Robert L. Puette..................... Director
Masayoshi Son........................ Director
Donald T. Valentine.................. Vice Chairman of the Board
Steven M. West....................... Director
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS
MR. CHAMBERS, 47, has been a member of the Board of Directors since
November 1993. He joined the Company as Senior Vice President in January 1991
and became Executive Vice President in June 1994. Mr. Chambers became President
and Chief Executive Officer of the Company as of January 31, 1995. Prior to his
services at Cisco, he was with Wang Laboratories for eight years, most recently
as Senior Vice President of U.S. Operations. Mr. Chambers currently serves on
the Board of Directors for Clarity and Arbor Software.
DR. GIBBONS, 65, has been a member of the Board of Directors since May
1992. He is a Professor of Electronic Engineering at Stanford University and
also Special Consul to the Stanford President for Industrial Relations. He was
Dean of the Stanford University School of Engineering from 1984 to 1996. Dr.
Gibbons also currently serves on the Board of Directors of Lockheed Martin
Corporation, Centigram Corporation, El Paso Natural Gas, Amati Communications
Corporation and Raychem Corporation.
MR. KOZEL, 41, will, assuming election by the Company's shareholders,
become a member of the Board of Directors on November 16, 1996. He joined the
Company as Director, Program Management in March 1989. In April 1992, he became
Director of Field Operations and in February 1993 he became Vice President of
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<PAGE> 6
Business Development. Since January 1996, he has been Chief Technology Officer
of the Company. Mr. Kozel currently serves on the Board of Directors of
Cybercash and NetFRAME Systems.
MR. MOLEY, 57, has been a member of the Board of Directors since July 1996.
He has been Senior Vice President, Wide Area Business Unit since July 1996.
Prior to that, he was President, Chief Executive Officer and Chairman of
StrataCom, Inc. from June 1986 to July 1996. Mr. Moley currently serves on the
Board of Directors of Linear Technology, Inc. and Cidco, Inc.
MR. MORGRIDGE, 63, joined the Company as President and Chief Executive
Officer and was elected to the Board of Directors in October 1988. Mr. Morgridge
became Chairman of the Board on January 31, 1995. From 1986 to 1988 he was
President and Chief Operating Officer at GRiD Systems, a manufacturer of laptop
computer systems. Mr. Morgridge currently serves on the Board of Directors of
Polycom, Inc.
MR. PUETTE, 54, has been a member of the Board of Directors since January
1991. He has been President, Chief Executive Officer and on the Board of
Directors of NetFRAME Systems since January 1995 and became Chairman of the
Board of Directors in January 1996. He was a consultant from November 1993 to
December 1994. Prior to that, he was Senior Vice President of Apple Computer,
Inc. and President of Apple USA Division from June 1990 to October 1993. Mr.
Puette also currently serves on the Board of Directors of Quality Semiconductor.
MR. SON, 39, has been a member of the Board of Directors since July 26,
1995. He has been the President and Chief Executive Officer of SOFTBANK
Corporation for more than fifteen years.
MR. VALENTINE, 64, has been a member of the Board of Directors of the
Company since December 1987, was elected Chairman of the Board of Directors in
December 1988. He became Vice Chairman of the Board on January 31, 1995. He has
been a general partner of Sequoia Capital since 1974. Mr. Valentine currently
serves as Chairman of the Board of Directors of C-Cube Microsystems, Inc., a
semiconductor video compression company, Chairman of the Board of Network
Appliance Corporation, a company in the network file server business, and
Chairman of the Board of Elantec, a manufacturer of analog integrated circuits.
MR. WEST, 41, has been a member of the Board of Directors of the Company
since April 1996. He has been President and Chief Executive Officer of Hitachi
Data System Corporation, a joint venture computer hardware services company
owned by Hitachi, Ltd. and EDS, since June 1996. Prior to that, Mr. West was at
EDS from 1986 to June of 1996, most recently as President of EDS's Infotainment
Business Unit.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended July 28, 1996, the Board of Directors held
seven meetings. During this period, each of the directors attended or
participated in more than of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all Committees of the Board on which each such director served.
The Company has six standing Committees: the Acquisition Committee, the
Audit Committee, the Compensation/Stock Option Committee, the Executive
Committee, the Nominating Committee, and the Special Stock Option Committee.
The Acquisition Committee reviews acquisition strategies and candidates
with the Company's management and makes recommendations to the Board of
Directors. This Committee held meetings during the last fiscal year. This
Committee currently consists of Messrs. Valentine, Chambers, Morgridge, and
Puette.
The Audit Committee is responsible for reviewing the Company's financial
procedures and controls and for selecting and meeting with the independent
accountants. This Committee held four meetings during the last fiscal year. This
Committee currently consists of Messrs. Frankel, Puette, and West.
The Compensation/Stock Option Committee is responsible for reviewing the
compensation arrangements in effect for the Company's executive officers and for
administering all the Company's employee benefit plans, including the 1987 Stock
Option Plan and the proposed 1996 Stock Incentive Plan. This committee
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<PAGE> 7
held sixteen meetings on matters relating to the approval of stock option grants
and meetings relating to executive compensation. This Committee currently
consists of Messrs. Puette, Frankel, and Gibbons.
The Executive Committee's duties include anything permitted by law to be
performed by the Board of Directors that does not require the full Board. This
Committee held meetings during the last fiscal year. This Committee
currently consists of Messrs. Morgridge, Chambers, and Valentine.
The Nominating Committee is responsible for nominating persons for election
as Directors of the Company. This Committee has no current plans to consider
nominees recommended by security holders. This Committee held meetings
during the last fiscal year. This Committee currently consists of Messrs.
Chambers, Gibbons, and Puette.
The Special Stock Option Committee has concurrent authorization with the
Compensation/Stock Option Committee to make option grants under the 1987 Stock
Option Plan and the proposed 1996 Stock Incentive Plan to eligible individuals
other than executive officers of the Company. This committee held
meetings during the last fiscal year with respect to the approval of such option
grants. This committee currently consists of Messrs. Chambers and Morgridge.
DIRECTOR COMPENSATION
For fiscal 1996, the non-employee directors (other than the Vice Chairman)
were each paid a $12,000 annual retainer fee for serving on the Board, as well
as $1,000 for each Board meeting they attended. Effective with the 1997 fiscal
year, the annual retainer fee has been increased to $20,000. Directors who are
also employees of the Company are eligible to receive options under the
Company's 1987 Stock Option Plan and to participate in the Company's 1989
Employee Stock Purchase Plan, the 401(k) Plan, and the Management Incentive
Plan. During the 1996 fiscal year, non-employee directors (other than members of
the Compensation/Stock Option Plan Committee) were eligible to participate in
the Discretionary Option Grant Program in effect under the 1987 Stock Option
Plan, and all non-employee directors were eligible to receive periodic option
grants under the Automatic Option Grant Program in effect under the 1987 Plan.
At the Annual Meeting held on November 14, 1995, each of the following
non-employee directors re-elected to the Board received an option grant under
the Automatic Option Grant Program for 10,000 shares of Common Stock with an
exercise price of $40.50 per share: Messrs. Frankel, Gibbons, Puette and
Valentine. In addition, Mr. West received an automatic option grant for 20,000
shares on April 21, 1996, when he was first appointed to the Board, with an
exercise price of $47.75 per share. The exercise price in effect for each option
is equal to the fair market value per share of Common Stock on the grant date.
Each option has a maximum term of five (5) years measured from the grant date,
subject to earlier termination following the optionee's cessation of Board
service. The shares subject to each 10,000-share grant will vest in two
successive equal annual installments upon the optionee's completion of each year
of Board service over the two-year period measured from the grant date. The
shares subject to the 20,000-share grant made to Mr. West will vest in four (4)
successive equal annual installments upon his completion of each year of Board
service over the four (4)-year period measured from the grant date. Each option
is immediately exercisable for all of the option shares; however, any shares
purchased under the option will be subject to repurchase by the Company, at the
option exercise price paid per share, upon the optionee's cessation of Board
service prior to vesting in those shares. Lastly, the option shares will
immediately vest in full upon certain changes in control or ownership of the
Company or upon the optionee's death or disability while a Board member.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the nominees listed herein.
4
<PAGE> 8
PROPOSAL NO. 2
APPROVAL OF IMPLEMENTATION OF THE 1996 STOCK INCENTIVE PLAN
The Company's shareholders are being asked to approve the implementation of
the 1996 Stock Incentive Plan (the "1996 Plan") as the successor to the
Company's existing 1987 Stock Option Plan (the "Predecessor Plan"). The 1996
Plan will become effective immediately upon such shareholder approval, and all
outstanding options under the Predecessor Plan will be transferred to the 1996
Plan at that time. The Predecessor Plan will terminate, and no further option
grants or share issuances will be made under the Predecessor Plan. However, all
outstanding options under the Predecessor Plan will continue to be governed by
the terms and conditions of the existing option agreements for those grants.
As of September 20, 1996, options for shares of Common Stock were
outstanding under the Predecessor Plan, and shares of Common Stock
remained available for future option grants. This existing share
reserve will be transferred to the 1996 Plan and serve as the initial Common
Stock reserve available for issuance under the 1996 Plan.
The 1996 Plan is designed to serve as a comprehensive equity incentive
program to attract and retain the services of individuals essential to the
Company's long-term growth and financial success. Accordingly, officers and
other key employees, non-employee Board members, consultants and other advisors
in the service of the Company or any subsidiary corporation will have the
opportunity to acquire a meaningful equity interest through their participation
in the 1996 Plan.
The following is a summary of the principal features of the 1996 Plan. A
copy of the proposed 1996 Plan will be furnished by the Company to any
shareholder upon written request to the Corporate Secretary located in San Jose,
California.
DESCRIPTION OF THE 1996 PLAN
Structure. The 1996 Plan will consist of two (2) separate equity incentive
programs: (i) a Discretionary Option Grant Program under which eligible
individuals in the Company's employ or service may, at the discretion of the
Plan Administrator, be granted options to purchase shares of Common Stock and
(ii) an Automatic Option Grant Program under which eligible non-employee Board
members will automatically receive option grants to purchase shares of Common
Stock at designated intervals over their period of Board service. The principal
features of each program are described below.
Administration. The Compensation/Stock Option Committee of the Board will
serve as the initial Plan Administrator with respect to the Discretionary Option
Grant Program. However, one or more additional Board committees may be appointed
to administer that program with respect to certain designated classes of
individuals in the Company's service. The term "Plan Administrator" as used in
this summary will mean the Compensation/Stock Option Committee and any other
appointed committee acting within the scope of its administrative authority
under the 1996 Plan. Administration of the Automatic Option Grant Program will
be self-executing in accordance with the express provisions of that program, and
no Plan Administrator will exercise any discretion with respect to such program.
Eligibility. Officers and employees, non-employee Board members, and
independent consultants and advisors in the service of the Company or any parent
or subsidiary corporation (whether now existing or subsequently established)
will be eligible to participate in the Discretionary Option Grant Program. Only
non-employee Board members will be eligible to participate in the Automatic
Option Grant Program.
As of September 20, 1996, six (6) executive officers, approximately
other employees and six (6) non-employee Board members were eligible to
participate in the 1996 Plan.
Share Reserve. The maximum number of shares of Common Stock reserved for
issuance under the 1996 Plan will initially be limited to the shares
transferred from the Predecessor Plan. However, this share reserve will
automatically be increased each year for three (3) years on the first trading
day of fiscal December, beginning with fiscal December 1996 and continuing
through fiscal December 1999, by a number of shares equal to four and three
quarters percent (4.75%) of the total number of shares of Common Stock
outstanding on the last trading day in the immediately preceding fiscal
November. The shares issuable under the 1996 Plan may be made available either
from the Company's authorized but unissued Common
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<PAGE> 9
Stock or from Common Stock reacquired by the Company, including shares purchased
in the open market. In addition, shares subject to any outstanding options under
the 1996 Plan (including options transferred from the Predecessor Plan) which
expire or terminate prior to exercise and any unvested shares reacquired by the
Company pursuant to its repurchase rights under the 1996 Plan will be available
for subsequent issuance.
No one participant in the 1996 Plan may receive stock option grants or
separately exercisable stock appreciation rights for more than 2,000,000 shares
of Common Stock in the aggregate per calendar year.
Valuation. For purposes of establishing the option price and for all other
valuation purposes under the 1996 Plan, the fair market value per share of
Common Stock on any relevant date under the 1996 Plan will be the closing
selling price per share of Common Stock on that date, as such price is reported
on the Nasdaq National Market. The closing selling price of the Common Stock on
September 20, 1996 was $ per share.
DISCRETIONARY OPTION GRANT PROGRAM
The options granted under the Discretionary Option Grant Program may be
either incentive stock options under the federal tax laws or non-statutory
options. Each granted option will have an exercise price per share not less than
one hundred percent (100%) of the fair market value per share of Common Stock on
the option grant date, and no granted option will have a term in excess of nine
(9) years. The shares subject to each option will generally vest in a series of
installments over a specified period of service measured from the grant date.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent exercisable for vested
shares. The Plan Administrator will have complete discretion to extend the
period following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding.
Stock Appreciation Rights. Three types of stock appreciation rights are
authorized for issuance under the Discretionary Option Grant Program: (i) tandem
rights, which require the option holder to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of such option
for an appreciation distribution; (ii) stand-alone stock appreciation rights not
tied to an option grant but with a base price per share equal to the fair market
value per share of Common Stock on the grant date; and (iii) limited rights
which would become exercisable upon the occurrence of a hostile take-over.
The appreciation distribution payable by the Company upon the exercise of a
tandem stock appreciation right will be equal in amount to the excess of (i) the
fair market value (on the exercise date) of the shares of Common Stock in which
the optionee is at the time vested under the surrendered option over (ii) the
aggregate exercise price payable for such shares. Such appreciation distribution
may, at the Plan Administrator's discretion, be made in cash or in shares of
Common Stock valued at fair market value on the exercise date.
The appreciation distribution payable by the Company upon the exercise of a
stand-alone stock appreciation right will be equal in amount to the excess of
(i) the fair market value (on the exercise date) of the shares of Common Stock
underlying the exercised right over (ii) the aggregate base price in effect for
those shares. Such appreciation distribution may, at the Plan Administrator's
discretion, be made in cash or in shares of Common Stock valued at fair market
value on the exercise date. The base price in effect for each stand-alone right
may not be less than the fair market value per share of Common Stock on the date
that right is granted.
One or more officers or directors of the Company subject to the short-swing
profit restrictions of the Federal securities laws may, at the discretion of the
Plan Administrator, be granted limited stock appreciation rights in connection
with their option grants under the Discretionary Option Grant Program. Each
option with such a limited stock appreciation right may be surrendered to the
Company, to the extent such option is
6
<PAGE> 10
exercisable for one or more vested option shares, upon the successful completion
of a hostile tender offer for more than 35% of the Company's outstanding voting
stock. In return, the optionee will be entitled to a cash distribution from the
Company in an amount per surrendered option share equal to the excess of (i) the
highest price per share of Common Stock paid in the tender offer over (ii) the
option exercise price per share.
Shares subject to stock appreciation rights exercised under the 1996 Plan
will not be available for subsequent issuance.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member at or after the 1996 Annual Meeting, whether through
election by the shareholders or appointment by the Board, will receive, at the
time of such initial election or appointment, an automatic option grant for
20,000 shares of Common Stock, provided such individual was not previously in
the Company's employ. In addition, on the date of each Annual Meeting, beginning
with the 1996 Annual Meeting, each individual re-elected to serve as a
non-employee Board member will automatically be granted at that meeting a stock
option to purchase 10,000 shares of Common Stock, provided such individual has
served as a non-employee Board member for at least six (6) months. There will be
no limit on the number of such 10,000 share option grants any one non-employee
Board member may receive over his or her period of Board service, and
non-employee Board members who have previously served in the Company's employ
will be fully eligible for one or more 10,000-share option grants.
Each option granted under the Automatic Option Grant Program will be
subject to the following terms and conditions:
- The exercise price per share will be equal to 100% of the fair market
value per share of Common Stock on the automatic grant date.
- Each option will have a maximum term equal to the lesser of (i) nine (9)
years measured from the grant date or (ii) twelve (12) months following
termination of Board service.
- Each option will be immediately exercisable for all the option shares,
but any purchased shares will be subject to repurchase by the Company, at
the exercise price paid per share, upon the optionee's cessation of Board
service prior to vesting in those shares.
- The shares subject to each initial 20,000 share grant will vest in four
(4) successive equal annual installments over the optionee's period of
Board service, with the first such installment to vest upon the
completion of one (1) year of Board service measured from the automatic
grant date. The shares subject to each annual 10,000 share grant will
vest in two (2) successive equal annual installments over the optionee's
period of Board service, with the first such installment to vest upon the
completion of one year of Board service measured from the automatic grant
date.
- The shares subject to each outstanding automatic option grant will
immediately vest should the optionee die or become permanently disabled
while a Board member or should any of the following events occur while
the optionee continues in Board service: (i) an acquisition of the
Company by merger or asset sale; (ii) the successful completion of a
hostile tender offer for more than thirty five percent (35%) of the
outstanding voting securities; or (iii) a change in the majority of the
Board occasioned by one or more contested elections for Board membership.
- Upon the successful completion of a hostile tender offer for securities
possessing more than thirty five percent (35)% of the total combined
voting power of the Company's outstanding voting securities, each
outstanding automatic option grant may be surrendered to the Company for
a cash distribution per surrendered option share in an amount equal to
the excess of (i) the highest price per share of Common Stock paid in
such hostile tender offer over (ii) the exercise price payable per share.
7
<PAGE> 11
GENERAL PROVISIONS
Vesting Acceleration. In the event that the Company is acquired by merger
or asset sale, each outstanding option under the Discretionary Option Grant
Program which is not to be assumed or replaced by the successor corporation will
automatically accelerate in full, except to the extent that option is assumed or
replaced by the successor corporation. In addition, the Plan Administrator will
have complete discretion to grant one or more options under the Discretionary
Option Grant Program which will become fully exercisable for all option shares
in the event those options are assumed in the acquisition and the optionee's
service with the Company or the acquiring entity is involuntarily terminated
within a designated period following such acquisition. The Plan Administrator
will have similar discretion to grant options which will become fully
exercisable for all the option shares should the optionee's service terminate,
whether involuntarily or through a resignation for good reason, within a
designated period following a hostile change in control of the Company (whether
by successful tender offer for more than 35% of the outstanding voting stock or
by proxy contest for the election of Board members). Each option outstanding
under the Automatic Option Grant Program will automatically vest in full in the
event of an acquisition of the Company by merger or asset sale or a hostile
change in control of the Company.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Financial Assistance. The Plan Administrator may institute a loan program
to assist one or more participants in financing the exercise of outstanding
options or the purchase of shares under the 1996 Plan through full-recourse
interest-bearing promissory notes. However, the maximum amount of financing
provided any participant may not exceed the cash consideration payable for the
issued shares plus all applicable taxes incurred in connection with the
acquisition of the shares.
Changes in Capitalization. In the event any change is made to the
outstanding shares of Common Stock by reason of any recapitalization, stock
dividend, stock split, combination of shares, exchange of shares or other change
in corporate structure effected without the Company's receipt of consideration,
appropriate adjustments will be made to (i) the maximum number and/or class of
securities issuable under the 1996 Plan, (ii) the number and/or class of
securities for which any one person may be granted stock options or separately
exercisable stock appreciation rights under the 1996 Plan per calendar year,
(iii) the number and/or class of securities for which grants are subsequently to
be made under the Automatic Option Grant Program to new and continuing
non-employee Board members and (iv) the number and/or class of securities and
the exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder.
Each outstanding option which is assumed in connection with a Corporate
Transaction will be appropriately adjusted to apply and pertain to the number
and class of securities which would otherwise have been issued, in consummation
of such Corporate Transaction, to the option holder had the option been
exercised immediately prior to the Corporate Transaction. Appropriate
adjustments will also be made to the option price payable per share and to the
class and number of securities available for future issuance under the 1996 Plan
on both an aggregate and a per-participant basis.
Special Tax Election
The Plan Administrator may, in its discretion, provide one or more holders
of outstanding options under the Discretionary Option Grant Program with the
right to have the Company withhold a portion of the shares of Common Stock
otherwise issuable to such individuals in satisfaction of the income and
employment tax liability incurred by them in connection with the exercise of
those options. Alternatively, the Plan Administrator may allow such individuals
to deliver existing shares of Common Stock in satisfaction of such tax
liability.
8
<PAGE> 12
Amendment and Termination. The Board may amend or modify the 1996 Plan in
any or all respects whatsoever. However, certain amendments may require
shareholder approval pursuant to applicable laws and regulations.
Unless sooner terminated by the Board, the 1996 Plan will in all events
terminate on December 31, 2006. Any options outstanding at the time of such
termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
Predecessor Plan
All outstanding options under the Predecessor 1987 Option Plan which are
transferred to the 1996 Plan will continue to be governed solely by the terms of
the documents evidencing such options, and no provision of the 1996 Plan will
affect or otherwise modify the rights or obligations of the holders of those
transferred options with respect to their acquisition of shares of Common Stock.
However, the Plan Administrator will have complete discretion to extend one or
more provisions of the 1996 Plan to the transferred options to the extent those
options do not otherwise contain such provisions.
OPTION GRANTS
For each of the executive officers named in the Summary Compensation Table
and the various indicated groups, the table below shows (i) the number of shares
of Common Stock subject to options granted under the predecessor 1987 Stock
Option Plan during the period from July 31, 1995 to July 28, 1996 and (ii) the
weighted average exercise price payable per share under such options.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
OPTION OF
NAME AND POSITION SHARES GRANTED OPTIONS
------------------------------------------------ ---------- ----------------
<S> <C> <C>
John T. Chambers................................ 700,000 $33.3125
President and Chief Executive Officer
Donald A. LeBeau................................ 110,000 $52.2500
Senior Vice President, Worldwide Operations
Larry R. Carter................................. 110,000 $52.2500
Vice President, Finance and Administration,
Chief Financial Officer, and Secretary
Frank J. Marshall............................... 100,000 $51.1250
Vice President/General Manager Core Products
Business Unit
Carl Redfield................................... 85,000 $52.2500
Vice President, Manufacturing and Logistics
All current executive officers as a group
(6 persons)................................... 1,215,000 $41.2469
All current directors (other than executive
officers)
as a group (7 persons)........................ 200,000 $36.5063
All employees, including current officers who
are not executive officers, as a group (8,253
persons)...................................... 19,519,362 $42.5900
</TABLE>
NEW PLAN BENEFITS
No option grants will be made under the 1996 Plan prior to shareholder
approval of the 1996 Plan at the Annual Meeting. If such shareholder approval is
obtained, then each of the following individuals re-elected as non-employee
Board members at the Annual Meeting will receive at that time an option grant
for 10,000 shares of Common Stock under the Automatic Option Grant Program to be
in effect under the 1996 Plan: Messrs. Gibbons, Puette, Son, West and Valentine.
Each of these automatic grants will have an exercise price per share equal to
the closing selling price per share of Common Stock on the grant date.
9
<PAGE> 13
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE OPTION PLAN
Options granted under the 1996 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized
at the time the option is exercised. The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or
otherwise made the subject of a taxable disposition. For Federal tax
purposes, dispositions are divided into two categories: (i) qualifying and
(ii) disqualifying. A qualifying disposition occurs if the sale or other
disposition is made after the optionee has held the shares for more than
two (2) years after the option grant date and more than one (1) year after
the exercise date. If either of these two holding periods is not satisfied,
then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will
recognize long-term capital gain in an amount equal to the excess of (i)
the amount realized upon the sale or other disposition of the purchased
shares over (ii) the exercise price paid for those shares. If there is a
disqualifying disposition of the shares, then the excess of (i) the fair
market value of the shares on the exercise date over (ii) the exercise
price paid for those shares will be taxable as ordinary income to the
optionee. Any additional gain or loss recognized upon the disposition will
be taxable as a capital gain or loss.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for
the taxable year in which such disposition occurs, equal to the excess of
(i) the fair market value of such shares on the option exercise date over
(ii) the exercise price paid for the shares. In no other instance will the
Company be allowed a deduction with respect to the optionee's disposition
of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised,
equal to the excess of the fair market value of the purchased shares on the
exercise date over the exercise price paid for the shares, and the optionee
will be required to satisfy the tax withholding requirements applicable to
such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then
the optionee will not recognize any taxable income at the time of exercise
but will have to report as ordinary income, as and when the Company's
repurchase right lapses, an amount equal to the excess of (i) the fair
market value of the shares on the date the repurchase right lapses over
(ii) the exercise price paid for the shares. The optionee may, however,
elect under Section 83(b) of the Internal Revenue Code to include as
ordinary income in the year of exercise of the option an amount equal to
the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the
Section 83(b) election is made, the optionee will not recognize any
additional income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHT
No taxable income is recognized upon the receipt of a stock appreciation
right. The holder will recognize ordinary income, in the year in which the right
is exercised, equal to the excess of the fair market value of the underlying
shares of Common Stock on the exercise date over the base price in effect for
the exercised right, and the holder will be required to satisfy the tax
withholding requirements applicable to such income.
10
<PAGE> 14
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the holder in connection with the exercise of
the stock appreciation right. The deduction will be allowed for the taxable year
of the Company in which such ordinary income is recognized.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those options
will remain deductible by the Company without limitation under Code Section
162(m).
ACCOUNTING TREATMENT
Option grants at 100% of fair market value will generally not result in any
charge to the Company's earnings, but the Company must disclose, in pro-forma
statements to the Company's financial statements, the impact those options would
have upon the Company's reported earnings were the value of those options at the
time of grant treated as compensation expense. Whether or not granted at a
discount, the number of outstanding options is a factor used in determining the
Company's earnings per share.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to the
Company's earnings.
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1996 Meeting,
together with the affirmative vote of a majority of the required quorum, is
required for approval of the 1996 Plan. If such approval is obtained, then the
1996 Plan will become effective immediately. Should such stockholder approval
not be obtained, then the 1996 Plan will not be implemented, and the Predecessor
Plan will remain in effect, and options will continue to be granted under that
plan, until the existing reserve of Common Stock available for issuance under
the Predecessor Plan has been issued.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR the
approval of the implementation of the 1996 Plan. The Board believes that it is
in the best interests of the Company to implement a comprehensive equity
incentive program for the Company's officers, employees, non-employee Board
members, and consultants which will encourage such individuals to remain in the
Company's service and more closely align their interests with those of the
shareholders.
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO BYLAWS
TO INCREASE MINIMUM AND MAXIMUM NUMBER OF DIRECTORS
GENERAL
Section 2 of Article III of the Company's Amended and Restated Bylaws (the
"Bylaws") currently provides that the authorized number of directors shall be a
minimum of five and a maximum of nine. The Board of Directors has adopted,
subject to shareholder approval, an amendment to the Bylaws that would increase
the specified limits of the authorized number of directors to a minimum of seven
and a maximum of thirteen, with the exact number of directors to be fixed at
nine until changed within the new limits by the Company's shareholders or the
Board of Directors.
11
<PAGE> 15
The Board of Directors believes that this proposed Bylaw amendment will
enable the Board to take timely advantage of the availability of well-qualified
candidates for appointment to the Board, in particular, candidates from outside
the Company whose skills and experience will benefit the Company. Accordingly,
it is proposed that Section 2 of Article III of the Bylaws of the Company be
amended to read as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The number of
authorized directors shall be not less than seven (7) nor more than thirteen
(13), the exact number of directors to be fixed from time to time within such
range by a duly adopted resolution of the Board of Directors or shareholders."
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock is required for approval of the amendment of Section 2 of
Article III to the Bylaws.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR the
approval of the amendment to the Company's Bylaws.
PROPOSAL NO. 4
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the shareholders to ratify the selection of Coopers &
Lybrand L.L.P. as the Company's independent accountants for the fiscal year
ending July 26, 1997. The affirmative vote of a majority of the outstanding
voting shares of the Company present or represented and entitled to vote at the
1996 Meeting, together with the affirmative vote of a majority of the required
quorum, is required to ratify the selection of Coopers & Lybrand L.L.P.
In the event the shareholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors, in its discretion, may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors feels that such a change would be in the Company's and its
shareholders' best interests.
Coopers & Lybrand L.L.P. has audited the Company's financial statements
annually since fiscal 1988. Its representatives will be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so,
and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR the
ratification of the selection of Coopers & Lybrand L.L.P. to serve as the
Company's independent accountants for the fiscal year ending July 26, 1997.
12
<PAGE> 16
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of July
28, 1996 for (i) all persons who are beneficial owners of five percent or more
of the Company's Common Stock, (ii) each director and nominee for director,
(iii) the Company's Chief Executive Officer and the other executive officers
named in the Summary Compensation Table below, and (iv) all current officers and
directors as a group as of July 28, 1996:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
------------------------------------------------------------- ------------ ---------
<S> <C> <C>
Larry R. Carter(3)........................................... 122,858 *
John T. Chambers............................................. 764,916 *
Michael S. Frankel........................................... 40,000 *
James F. Gibbons............................................. 120,000 *
Edward R. Kozel.............................................. 254,174 *
Donald A. LeBeau............................................. 183,960 *
Frank J. Marshall............................................ 476,250 *
Richard M. Moley............................................. 2,388,268 *
John P. Morgridge(4)......................................... 10,072,865 1.55
Robert L. Puette............................................. 40,000 *
Carl Redfield................................................ 239,722 *
Masayoshi Son................................................ 40,000 *
Donald T. Valentine(5)....................................... 350,247 *
Steven M. West............................................... 20,000 *
All current officers and directors
as a group (13 persons)(6)................................. 12,724,992 1.95
</TABLE>
- ---------------
* Less than one percent.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock. The
number of shares beneficially owned includes Common Stock of which such
individual has the right to acquire beneficial ownership either currently or
within 60 days after July 28, 1996, including, but not limited to, upon the
exercise of an option.
(2) Percentage of beneficial ownership is based upon 649,284,817 shares of
Common Stock, all of which were outstanding on July 28, 1996. For each
individual, this percentage includes Common Stock of which such individual
has the right to acquire beneficial ownership either currently or within 60
days of July 28, 1996, including, but not limited to, upon the exercise of
an option; however, such Common Stock shall not be deemed outstanding for
the purpose of computing the percentage owned by any other individual. Such
calculation is required by General Rule 13d-3(d)(1)(i) under the Securities
Exchange Act of 1934. Based upon a review of 13G filings made with the
Securities and Exchange Commission during 1996, there were no 5%
shareholders.
(3) Includes 3,066 shares held by the Carter Rev. Trust dated October 18, 1994.
(4) Includes 9,508,710 shares held by John P. Morgridge and Tashia F. Morgridge
as Trustees of the Morgridge Family Trust (UTA DTD 6/30/88). Includes 20,320
shares held by Tashia F. Morgridge. Includes 50,000 shares held in the
Morgridge Family Foundation.
(5) Includes 191,080 shares held by the Donald T. Valentine Family Trust Under
Agreement dated April 29, 1967.
(6) Includes outstanding options to purchase 2,502,298 shares of Common Stock
held by six (6) officers and seven (7) directors of the Company to the
extent such options are either currently exercisable or will
13
<PAGE> 17
become exercisable within 60 days after July 28, 1996. See Note 2 with respect
to shares that have been included herein.
COMPLIANCE WITH SEC REPORTING REQUIREMENTS
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report initial ownership of the Company's
Common Stock and any subsequent changes in ownership to the Securities and
Exchange Commission ("SEC"). Specific due dates have been established by the
SEC, and the Company is required to disclose in this Proxy Statement any failure
to file by these dates. Based upon (i) the copies of Section 16(a) reports that
the Company received from such persons for their 1996 fiscal year transactions
and (ii) the written representations received from one or more of such persons
that no annual Form 5 reports were required to be filed for them for the 1996
fiscal year, the Company believes that there has been compliance with all
Section 16(a) filing requirements applicable to such officers, directors, and
ten-percent beneficial owners for such fiscal year, except that Mr. Morgridge
filed a late Form 4 with respect to the shares of the Company's Common Stock
acquired, in exchange for shares of StrataCom, Inc. held by him for more than
six months, in connection with the Company's acquisition of StrataCom, Inc.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT
The Compensation/Stock Option Committee (the "Committee") of the Board of
Directors sets the compensation of the Chief Executive Officer, reviews the
design, administration, and effectiveness of compensation programs for other key
executives, and approves stock option grants for all executive officers. The
Committee, serving under a charter adopted by the Board of Directors, is
composed entirely of outside directors who have never served as officers of the
Company.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company operates in the extremely competitive and rapidly changing high
technology industry. The Committee believes that the compensation programs for
executive officers of the Company should be designed to attract, motivate, and
retain talented executives responsible for the success of the Company and should
be determined within a competitive framework and based on the achievement of
overall financial results, individual contributions, and a measure of customer
satisfaction. Within this overall philosophy, the Committee's objectives are to:
- Offer a total compensation program that takes into consideration the
compensation practices of the Peer Companies and other selected companies
with whom the Company competes for executive talent.
- Provide annual variable incentive awards that take into account the
Company's overall financial performance relative to corporate objectives
and the Peer Companies' performance, and based on individual
contributions and a measure of customer satisfaction.
- Align the financial interests of executive officers with those of
shareholders by providing significant equity-based, long-term incentives.
COMPENSATION COMPONENTS AND PROCESS
The three major components of the Company's executive officer compensation
are: (i) base salary, (ii) variable incentive awards, and (iii) long-term
equity-based incentive awards.
The Committee determines executive officers' compensation levels with the
assistance of the Company's Human Resources Department, which works with an
independent consulting firm that furnishes the Committee with executive
compensation data drawn from a nationally recognized survey of similarly sized
technology companies (the "Peer Companies"). A significant number of the Peer
Companies are listed in the Hambrecht & Quist Technology Index which is included
in the Performance Graph for this Proxy Statement. Certain companies not
included in this Index were considered Peer Companies because the Company
14
<PAGE> 18
competes for executive talent with those firms. However, some organizations in
the Hambrecht & Quist Technology Index were excluded from the Peer Companies
list because they were not considered competitors for executive talent or
because compensation information was not available.
The positions of the Company's CEO and executive officers were compared
with those of their counterparts at the Peer Companies, and the market
compensation levels for comparable positions were examined to determine base
salary, target incentives, and total cash compensation. In addition, the Peer
Companies' practices concerning stock option grants were reviewed and compared.
Base Salary. The base salary for each executive officer is determined at
levels considered appropriate for comparable positions at the Peer Companies.
The Company's policy is to target base salary levels between the 25th and 50th
percentile of compensation practices at the Peer Companies.
Variable Incentive Awards. To reinforce the attainment of Company goals,
the Committee believes that a substantial portion of the annual compensation of
each executive officer should be in the form of variable incentive pay. The
annual incentive pool for executive officers is determined on the basis of the
Company's achievement of the financial performance targets established at the
beginning of the fiscal year, a range for the executive's contribution, and a
measure of customer satisfaction. The incentive plan requires a threshold level
of Company performance based on both revenue and profit before interest and
taxes that must be attained before any incentives are awarded. Once the new
fiscal year's threshold is reached, specific formulas are in place to calculate
the actual incentive payment for each officer. A target is set for each
executive officer based on targets for comparable positions at the Peer
Companies. In fiscal 1996, the Company exceeded its performance targets. Awards
paid reflected these results plus individual accomplishments of both corporate
and functional objectives and a component of customer satisfaction.
Long-Term, Equity-Based Incentive Awards. The goal of the Company's
long-term equity-based incentive awards is to align the interests of executive
officers with shareholders and to provide each executive officer with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. The Committee determines the size of
long-term, equity-based incentives according to each executive's position within
the Company and sets a level it considers appropriate to create a meaningful
opportunity for stock ownership. In addition, the Committee takes into account
an individual's recent performance, his or her potential for future
responsibility and promotion, comparable awards made to individuals in similar
positions with the Peer Companies, and the number of unvested options held by
each individual at the time of the new grant. The relative weight given to each
of these factors varies among individuals at the Committee's discretion.
During fiscal 1996, the Committee made option grants to Messrs. Carter,
Chambers, Kozel, LeBeau, Marshall and Redfield under the 1987 Stock Option Plan.
Each grant allows the officer to acquire shares of the Company's common stock at
a fixed price per share (the market price on the grant date) over a specified
period of time. Specifically, the option vests in periodic installments over a
four-year period, contingent upon the executive officer's continued employment
with the Company. Accordingly, the option will provide a return only if the
officer remains with the Company and only if the market price appreciates over
the option term.
CEO Compensation. The annual base salary for Mr. Chambers was established
by the Committee on August 1, 1995, for the period July 31, 1995 to July 28,
1996. The Committee's decision was based on Mr. Chambers' personal performance
of his duties and on salary levels paid to chief executive officers of the Peer
Companies, but set below the 25th percentile of the surveyed data.
Mr. Chambers' 1996 fiscal year incentive compensation was based on the
actual financial performance of the Company relative to corporate objectives and
a measure of customer satisfaction. Mr. Chambers' incentive compensation
provided no dollar guarantees. His bonus award was based on the incentive plan
used for all executive officers. The option grant made to Mr. Chambers was based
upon his performance and leadership with the Company. The grant placed a
significant portion of his total compensation at risk, since the options' value
depends on the appreciation of the Company's common stock over the option term.
15
<PAGE> 19
Compliance with Internal Revenue Code Section 162(m). As a result of
Section 162(m) of the Internal Revenue Code, which was enacted into law in 1993,
the Company will not be allowed a Federal income tax deduction for compensation
paid to certain officers, to the extent that compensation exceeds one (1)
million dollars per officer in any one year. This limitation will apply to all
compensation which is not considered to be performance based. Compensation which
does qualify as performance-based compensation will not have to be taken into
account for purposes of this limitation. At the 1994 Annual Meeting, the Company
obtained shareholder approval for certain amendments to the Company's 1987 Stock
Option Plan which were designed to assure that any compensation deemed paid in
connection with the exercise of stock options granted under that plan would
qualify as performance-based compensation.
The cash compensation paid to the Company's executive officers during
fiscal 1996 did not exceed the one (1) million dollar limit per officer, nor is
the cash compensation to be paid to the Company's executive officers for the
1997 fiscal year expected to reach that level. Because it is very unlikely that
the cash compensation payable to any of the Company's executive officers in the
foreseeable future will approach the one (1) million dollar limitation, the
Committee has decided not to take any action at this time to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Committee will reconsider this decision should the individual
compensation of any executive officer ever approach the
one (1) million dollar level.
COMPENSATION/STOCK OPTION COMMITTEE
Robert L. Puette, Chairman
James F. Gibbons
Michael S. Frankel
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation/Stock Option Committee of the Company's
Board of Directors are as named above in the Compensation/Stock Option Committee
Report. No member of the Committee was at any time during the 1996 fiscal year
or at any other time an officer or employee of the Company.
Mr. Puette, the Chairman of the Compensation/Stock Option Committee, is the
President, Chief Executive Officer and member of the Board of Directors of
NetFRAME Systems ("NetFRAME"), and Mr. Kozel, an executive officer of the
Company, is also a member of the NetFRAME Board. No other executive officer of
the Company served on the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation/Stock Option Committee.
16
<PAGE> 20
STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on July 28, 1991, along with the composite prices of
companies listed in the S&P 500 and the Hambrecht & Quist Technology Index.
<TABLE>
<CAPTION>
Hambrecht &
Measurement Period Cisco Quist
(Fiscal Year Covered) Systems, Inc. S & P 500 Technology
<S> <C> <C> <C>
7/28/91 100 100 100
7/26/92 283 108 112
7/25/93 577 117 132
7/31/94 459 120 141
7/30/95 1225 148 250
7/28/96 2244 167 244
</TABLE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings made by the Company under those
statutes, the preceding Compensation/Stock Option Committee Report on Executive
Compensation and the Company Stock Performance Graph will not be incorporated by
reference into any of those prior filings, nor will such report or graph be
incorporated by reference into any future filings made by the Company under
those statutes.
- ---------------
Notes
(1) The Company's fiscal year ended on July 28, 1996.
(2) No cash dividends have been declared on the Company's Common Stock.
Shareholder returns over the indicated period should not be considered
indicative of future shareholder returns.
17
<PAGE> 21
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned, by the Company's
Chief Executive Officer and the four other highest-paid executive officers whose
salary and bonus for the 1996 fiscal year were in excess of $100,000, for
services rendered in all capacities to the Company and its subsidiaries for each
of the last three fiscal years. No executive officer who would have otherwise
been includable in such table on the basis of salary and bonus earned for the
1996 fiscal year has been excluded by reason of his or her termination of
employment or change in executive status during that fiscal year. The
individuals included in the table will be collectively referred to as the "Named
Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS ALL OTHER
----------------------------- OTHER ANNUAL ------------ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION(3) OPTIONS (#) ($)(1)
- --------------------------------- ----- -------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John T. Chambers................. 1996 249,824 368,952 0 700,000 1,500
President, CEO, Director 1995 230,468 163,806 0 400,000 1,500
1994 202,987 142,548 0 260,000 2,000
Donald A. LeBeau................. 1996 233,236 281,044 0 110,000 1,500
Senior Vice President, 1995 198,203 147,520 0 350,000 0
Worldwide Operations 1994 171,913 118,556 128,467 0 0
Larry R. Carter.................. 1996 229,335 265,198 0 110,000 1,500
Vice President, Finance 1995 100,006 65,157 180,000 550,000 1,500
and Administration, Chief 1994 N/A N/A N/A N/A N/A
Financial Officer, and Secretary
Frank J. Marshall................ 1996 225,413 264,912 0 100,000 1,500
Vice President/General 1995 198,374 123,085 0 180,000 1,500
Manager Core Products Business 1994 182,516 124,648 0 0 1,000
Unit
Carl Redfield.................... 1996 194,213 217,626 0 85,000 1,500
Vice President, 1995 158,547 101,132 0 200,000 1,500
Manufacturing & Logistics 1994 134,242 93,901 80,000 400,000 1,000
</TABLE>
- ---------------
(1) Represents the matching contribution which the Company made on behalf of
each Named Officer to the Company's 401(k) Plan.
(2) The amounts shown under the Bonus column represent cash bonuses earned for
the indicated fiscal years.
(3) Represents $128,467 in relocation payments for Mr. LeBeau, $180,000 hire-on
bonus for Mr. Carter, and $80,000 in relocation payments for Mr. Redfield.
STOCK OPTIONS
The following table provides information with respect to the stock option
grants made during the 1996 fiscal year under the Company's 1987 Stock Option
Plan to the Named Officers. No stock appreciation rights were granted to the
Named Officers during the fiscal year.
18
<PAGE> 22
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE OF ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION ------------------------
NAME (1) YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------------- --------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John T. Chambers......... 500,000 2.3968 31.0625 8/15/04 8,562,816 21,090,625
200,000 .9587 38.9375 1/22/05 4,293,468 10,575,018
Donald A. LeBeau......... 110,000 .5273 52.2500 5/06/05 3,168,759 7,804,804
Larry R. Carter.......... 110,000 .5273 52.2500 5/06/05 3,168,759 7,804,804
Frank J. Marshall........ 30,000 .1438 48.5000 3/18/05 802,183 1,975,814
70,000 .3355 52.2500 5/06/05 2,016,483 4,966,694
Carl Redfield............ 85,000 .4074 52.2500 5/06/05 2,448,586 6,030,985
</TABLE>
- ---------------
(1) Options were granted on August 16, 1995, January 23, 1996, March 19, 1996,
and May 7, 1996, and have a maximum term of 9 years measured from the
applicable grant date, subject to earlier termination in the event of the
optionee's cessation of service with the Company. Each option will become
exercisable for 25% of the option shares upon the completion of one year of
service measured from the grant date and will become exercisable for the
remaining shares in equal monthly installments over the next 36 months of
service thereafter. However, the option will immediately become exercisable
for all of the option shares in the event the Company is acquired by a
merger or asset sale, unless the options are assumed by the acquiring
entity.
(2) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 9-year option term will be at the assumed 5% or 10% annual rates of
compounded stock price appreciation or at any other defined level. Unless
the market price of the Common Stock appreciates over the option term, no
value will be realized from the option grants made to the executive
officers.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information with respect to the Named Officers
concerning their exercise of options during the 1996 fiscal year and the
unexercised options held by them as of the end of such year. No stock
appreciation rights were exercised during the fiscal year, and no stock
appreciation rights were outstanding at the end of the fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT JULY 28, 1996 AT JULY 28, 1996($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John T. Chambers........ 883,332 $32,593,537 306,666 1,053,334 $11,170,392 $ 25,319,608
Donald A. LeBeau........ 350,000 $12,404,285 169,376 317,292 $ 6,752,326 $ 7,343,568
Larry R. Carter......... 100,000 $ 2,785,000 96,875 463,125 $ 3,208,008 $ 11,913,867
Frank J. Marshall....... 600,000 $27,878,720 468,750 211,250 $21,009,847 $ 3,870,133
Carl Redfield........... 90,000 $ 3,290,625 210,250 324,750 $ 7,860,942 $ 8,728,433
</TABLE>
- ---------------
(1) Based upon the market price of $51.375 per share, which was the closing
selling price per share of Common Stock on the Nasdaq National Market on the
last day of the 1996 fiscal year less the option exercise price payable per
share.
(2) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for such shares.
19
<PAGE> 23
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
None of the Company's executive officers have employment, change in
control, or severance agreements with the Company, and their employment may be
terminated at any time at the discretion of the Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1993, the Company loaned Donald A. LeBeau, Senior Vice President,
Worldwide Operations of the Company, $400,000. The loan is due in full on August
9, 1997. The loan is interest free and is collateralized by a deed of trust on
real property.
In February 1994, the Company loaned Carl Redfield, Vice President of
Manufacturing of the Company, $200,000. The loan is due in full on March 1,
1998. The loan is interest free and is collateralized by a deed of trust on real
property.
In February 1995, the Company loaned Larry R. Carter, Vice President,
Finance and Administration, Chief Financial Officer, and Secretary, $400,000 as
part of the sign-on incentive package to induce him to join the Company's
employ. The loan is due in full on February 13, 1999. The loan is interest free
and is collateralized by a deed of trust on real property.
SHAREHOLDER PROPOSALS FOR 1997 PROXY STATEMENT
Shareholder proposals that are intended to be presented at the Company's
annual meeting of shareholders to be held in 1997 must be received by the
Company no later than June 9, 1997 in order to be included in the proxy
statement and related proxy materials.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES, AND
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO CISCO SYSTEMS, INC., 170 W. TASMAN
DRIVE, SAN JOSE, CALIFORNIA 95134-1706, ATTN: INVESTOR RELATIONS.
OTHER MATTERS
The Board knows of no other matters to be presented for shareholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in accordance
with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
--------------------------------------
Larry R. Carter
Secretary
20
<PAGE> 24
CISCO SYSTEMS, INC.
1996 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Incentive Plan is intended to promote the interests of
Cisco Systems, Inc., a California corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity
programs:
- the Discretionary Option Grant Program under
which eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, and
- the Automatic Option Grant Program under
which eligible non- employee Board members shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock.
<PAGE> 25
B. The provisions of Articles One and Four shall apply
to all equity programs under the Plan and shall govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive
authority to administer the Discretionary Option Grant Program with respect to
Section 16 Insiders.
B. Administration of the Discretionary Option Grant
Program with respect to all other persons eligible to participate in that
Program may, at the Board's discretion, be vested in the Primary Committee or
a Secondary Committee, or the Board may retain the power to administer that
Program with respect to all such persons. The members of the Secondary
Committee may be Board members who are Employees eligible to receive
discretionary option grants under the Plan or any other stock option, stock
appreciation, stock bonus or other stock plan of the Corporation (or any
Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and may
be removed by the Board at any time. The Board may also at any time terminate
the functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Discretionary Option
Grant Program, and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding
options thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant Program under its jurisdiction or any option or
stock issuance thereunder.
2.
<PAGE> 26
E. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member of
the Primary Committee or the Secondary Committee shall be liable for any act or
omission made in good faith with respect to the Plan or any option grants under
the Plan.
F. Administration of the Automatic Option Grant
Program shall be self-executing in accordance with the terms of that program,
and no Plan Administrator shall exercise any discretionary functions with
respect to any option grants made under that Program.
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant Program are as follows:
(i) Employees,
(ii) non-employee members of the Board or the
board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors
who provide services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of
its administrative jurisdiction under the Plan, have full authority to
determine, which eligible persons are to receive option grants under the
Discretionary Option Grant Program, the time or times when such option grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times when each option is to become exercisable, the
vesting schedule (if any) applicable to the option shares and the maximum term
for which the option is to remain outstanding.
3.
<PAGE> 27
C. The individuals who shall be eligible to participate
in the Automatic Option Grant Program shall be limited to (i) those individuals
serving as non-employee Board members on the Plan Effective Date, (ii) those
individuals who first become non-employee Board members on or after the Plan
Effective Date, whether through appointment by the Board or election by the
Corporation's shareholders, and (iii) those individuals who continue to serve as
non-employee Board members at one or more Annual Shareholders Meetings held
after the Plan Effective Date. A non-employee Board member who has previously
been in the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an option grant under the Automatic Option Grant Program at
the time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-employee Board member.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not
exceed shares. Such initial share reserve shall consist entirely of
the number of shares of Common Stock which remain available for issuance, as of
the Plan Effective Date, under the Predecessor Plan as last approved by the
Corporation's shareholders, including (i) shares of Common Stock
subject to outstanding options and (ii) additional shares of Common
Stock otherwise available for future option grants under the Predecessor Plan.
B. The number of shares of Common Stock available for
issuance under the Plan shall automatically increase on the first trading day of
fiscal December each calendar year, beginning with fiscal December 1996 and
continuing through fiscal December 1999, by a number of shares equal to four
and three-quarters percent (4.75%) of the total number of shares of
4.
<PAGE> 28
Common Stock outstanding on the last trading day in the immediately preceding
fiscal November. No Incentive Options may be granted on the basis of the
additional shares of Common Stock resulting from such annual increases.
C. No one person participating in the Plan may receive
stock options or separately exercisable stock appreciation rights for more than
2,000,000 shares of Common Stock in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants under the Plan. However, should the exercise price of an option under the
Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an option
or the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance. Shares of Common Stock underlying one
or more stock appreciation rights exercised under Section IV of Article Two of
the Plan shall NOT be available for subsequent issuance under the Plan.
E. If any change is made to the Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities for which
any one person may be granted stock options or separately exercisable stock
appreciation rights in the aggregate under the Plan per calendar year, (iii)
the number and/or class of securities for which grants are subsequently to be
made under the Automatic Option Grant Program to new and continuing
non-employee Board members, (iv) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the
5.
<PAGE> 29
Plan and (v) the number and/or class of securities and price per share in effect
under each outstanding option incorporated into this Plan from the Predecessor
Plan. Such adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under
such options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
6.
<PAGE> 30
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the
Plan Administrator but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Six and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the Exercise
Date, or
(iii) to the extent the option is exercised for
vested shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable written instructions to (a)
a Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
7.
<PAGE> 31
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of nine
(9) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator and
set forth in the documents evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part
by the Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.
(iii) Should the Optionee's Service be terminated
for Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable exercise
period or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which the option
has not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
8.
<PAGE> 32
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from
the limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested had the Optionee continued in Service.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
9.
<PAGE> 33
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Seven shall be applicable to Incentive Options. Options
designated as Non-Statutory Options when issued under the Plan shall not be
subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of
the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% SHAREHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Shareholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. However, an outstanding
option shall not so accelerate if and to the extent: (i) such option is, in
connection with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof), (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those option shares or (iii) the acceleration of such option is subject to other
limitations
10.
<PAGE> 34
imposed by the Plan Administrator at the time of the option grant. The
determination of option comparability under clause (i) above shall be made by
the Plan Administrator, and its determination shall be final, binding and
conclusive.
B. All outstanding repurchase rights shall also
terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
C. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments to reflect such Corporate Transaction shall
also be made to (i) the exercise price payable per share under each outstanding
option, provided the aggregate exercise price payable for such securities shall
remain the same, (ii) the maximum number and/or class of securities available
for issuance over the remaining term of the Plan and (iii) the maximum number
and/or class of securities for which any one person may be granted stock
options or separately exercisable stock appreciation rights under the Plan per
calendar year.
E. The Plan Administrator shall have full power and
authority to grant options under the Discretionary Option Grant Program which
will automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do not
otherwise accelerate. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights with
respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.
11.
<PAGE> 35
F. The Plan Administrator shall have full power and
authority to grant options under the Discretionary Option Grant Program which
will automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for fully-vested
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full.
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar limitation is not exceeded. To the extent such dollar limitation
is exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
H. The outstanding options shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority, exercisable in its sole discretion, to grant to selected Optionees or
other individuals eligible to receive option grants under the Discretionary
Option Grant Program stock appreciation rights.
B. Three types of stock appreciation rights shall be
authorized for issuance under the Plan: (i) tandem stock appreciation rights
("Tandem Rights"), (ii) stand-alone stock appreciation rights ("Stand-alone
Rights") and (iii) limited stock appreciation rights ("Limited Rights").
C. The following terms and conditions shall govern the
grant and exercise of Tandem Rights under this Article Two.
1. One or more Optionees may be granted a
Tandem Right, exercisable upon such terms and conditions as the Plan
Administrator may establish, to elect between the exercise of the
underlying Article Two stock option for shares of Common Stock or the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the
12.
<PAGE> 36
excess of (i) the Fair Market Value (on the option surrender date) of
the number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (ii) the
aggregate exercise price payable for such vested shares.
2. No such option surrender shall be effective
unless it is approved by the Plan Administrator, either at the time of
the actual option surrender or at any earlier time. If the surrender is
so approved, then the distribution to which the Optionee shall
accordingly become entitled under this Section V may be made in shares
of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
3. If the surrender of an option is not
approved by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the later of (i) five (5)
business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance
with the terms of the instrument evidencing such option, but in no
event may such rights be exercised more than nine (9) years after the
date of the option grant.
D. The following terms and conditions shall govern the grant and
exercise of Stand-alone Rights under this Article Two:
1. One or more individuals eligible to
participate in the Discretionary Option Grant Program may be granted a
Stand-alone Right not tied to any underlying option under this
Discretionary Option Grant Program. The Stand-alone Right shall cover a
specified number of underlying shares of Common Stock and shall be
exercisable upon such terms and conditions as the Plan Administrator
may establish. Upon exercise of the Stand-alone Right, the holder shall
be entitled to receive a distribution from the Corporation in an amount
equal to the excess of (i) the aggregate Fair Market Value (on the
exercise date) of the shares of Common Stock underlying the exercised
right over (ii) the aggregate base price in effect for those shares.
2. The number of shares of Common Stock
underlying each Stand-alone Right and the base price in effect for
those shares shall be determined by the Plan Administrator in its sole
discretion at the time the
13.
<PAGE> 37
Stand-alone Right is granted. In no event, however, may the base price
per share be less than the Fair Market Value per underlying share of
Common Stock on the grant date.
3. The distribution with respect to an
exercised Stand-alone Right may be made in shares of Common Stock
valued at Fair Market Value on the exercise date, in cash, or partly in
shares and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
E. The following terms and conditions shall govern the grant and
exercise of Limited Rights under this Article Two:
1. One or more Section 16 Insiders may, in the
Plan Administrator's sole discretion, be granted Limited Rights with
respect to their outstanding options under this Article Two.
2. Upon the occurrence of a Hostile Take-Over,
the Section 16 Insider shall have the unconditional right (exercisable
for a thirty (30)-day period following such Hostile Take-Over) to
surrender each option with such a Limited Right to the Corporation, to
the extent the option is at the time exercisable for fully vested
shares of Common Stock. The Section 16 Insider shall in return be
entitled to a cash distribution from the Corporation in an amount equal
to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject to each surrendered option (or surrendered
portion of such option) over (ii) the aggregate exercise price payable
for such vested shares. Such cash distribution shall be made within
five (5) days following the option surrender date.
3. The Plan Administrator shall pre-approve, at
the time such Limited Right is granted, the subsequent exercise of that
right in accordance with the terms of the grant and the provisions of
this Section IV. No additional approval of the Plan Administrator or
the Board shall be required at the time of the actual option surrender
and cash distribution. Any unsurrendered portion of the option shall
continue to remain outstanding and become exercisable in accordance
with the terms of the instrument evidencing such grant.
F. The shares of Common Stock underlying any stock
appreciation rights exercised under this Section IV shall NOT be available for
subsequent issuance under the Plan.
14.
<PAGE> 38
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates
specified below:
1. Each individual who is first elected or
appointed as a non- employee Board member on or after the Plan Effective Date
shall automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase 20,000 shares of Common Stock,
provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
2. On the date of each Annual Shareholders
Meeting, beginning on the Plan Effective Date, each individual who is re-elected
to serve as an Eligible Director shall automatically be granted a Non-Statutory
Option to purchase 10,000 shares of Common Stock, provided such individual has
served as a non-employee Board member for at least six (6) months. There shall
be no limit on the number of such 10,000-share option grants any one Eligible
Director may receive over his or her period of Board service, and non-employee
Board members who have previously been in the employ of the Corporation (or any
Parent or Subsidiary) shall be eligible to receive one or more such annual
option grants over their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall be payable in one
or more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a maximum term
equal to the lesser of (i) nine (9) years measured from the option grant date or
(ii) twelve (12) months following termination of Board service.
15.
<PAGE> 39
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial 20,000-share grant shall
vest, and the Corporation's repurchase right shall lapse in four (4) successive
equal annual installments over the Optionee's period of Board service, with the
first such installment to vest upon the completion of one (1) year of Board
service measured from the automatic grant date. Each annual 10,000-share grant
shall vest, and the Corporation's repurchase right shall lapse, in two (2)
successive equal annual installments over the optionee's period of Board service
measured from the automatic grant date.
E. TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee upon
his or her cessation of Board service:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a
Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so that
such option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any portion of
those shares as fully- vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than death
or Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
16.
<PAGE> 40
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-
OVER
A. In the event of any Corporate Transaction, the shares
of Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares
of Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each of his or her outstanding automatic option grants. The Optionee
shall in return be entitled to a cash distribution from the Corporation in an
amount equal to the excess of (i) the Take-Over Price of the shares of Common
Stock at the time subject to each surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. This provision of the Automatic Option Grant Program shall
constitute advance approval by the Board of any subsequent surrender of the
option in accordance with the provisions of this Section II.C, and no additional
approval of the Board or any Plan Administrator shall accordingly be required at
the time of the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same.
17.
<PAGE> 41
E. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
18.
<PAGE> 42
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price under the Discretionary Option Grant Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee exceed the sum of (i) the aggregate option exercise price payable for
the purchased shares plus (ii) any Federal, state and local income and
employment tax liability incurred by the Optionee in connection with the option
exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of options under the Plan shall be subject to
the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.
B. The Plan Administrator may, in its discretion,
provide any or all holders of Non-Statutory Options under the Discretionary
Option Gran Program with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options. Such right may be provided to any such
holder in either or both of the following formats:
Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such Non-Statutory
Option, a portion of those shares with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
19.
<PAGE> 43
Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is
exercised, one or more shares of Common Stock previously
acquired by such holder (other than in connection with the
option exercise triggering the Taxes) with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan and each of the equity incentive programs
thereunder shall become effective immediately upon the approval of the
Corporation's shareholders at the 1996 Annual Meeting. Options may be granted
under the Plan at any time on or after the date of such shareholder approval. If
such shareholder approval is not obtained, then this Plan shall not become
effective, and no options shall be granted and no shares shall be issued under
the Plan.
B. The Plan shall serve as the successor to the
Predecessor Plan, and no further option grants shall be made under the
Predecessor Plan after this Plan is approved by the shareholders at the 1996
Annual Meeting. All options outstanding under the Predecessor Plan at the time
of such shareholder approval shall be incorporated into the Plan at that time
and shall be treated as outstanding options under the Plan. However, each
outstanding option so incorporated shall continue to be governed solely by the
terms of the documents evidencing such option, and no provision of the Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such incorporated options with respect to their acquisition of shares
of Common Stock.
C. One or more provisions of the Plan, including
(without limitation) the option/vesting acceleration provisions of Article Two
relating to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i)
December 31, 2006, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such plan termination, all outstanding option grants shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants.
20.
<PAGE> 44
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options at the time outstanding under the Plan unless the
Optionee consents to such amendment or modification. In addition, certain
amendments may require shareholder approval in accordance with applicable laws
and regulations.
B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program that are in excess of the
number of shares then available for issuance under the Plan, provided any
excess shares actually issued under that program shall be held in escrow until
there is obtained shareholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such shareholder approval is not obtained within twelve (12) months after the
date the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
stock option under the Plan and the issuance of any shares of Common Stock
upon the exercise of any granted option shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the stock options granted under it and the
shares of Common Stock issued pursuant to it.
21.
<PAGE> 45
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at
any time for any reason, with or without cause.
22.
<PAGE> 46
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the
automatic option grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of
Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or
control of the Corporation effected through either of the following
transactions:
(i) the acquisition, directly or indirectly by
any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than thirty-five percent (35%) of the total combined
voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's
shareholders which the Board does not recommend such shareholders to
accept, or
(ii) a change in the composition of the Board
over a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as
amended.
E. COMMON STOCK shall mean the Corporation's common
stock.
F. CORPORATE TRANSACTION shall mean either of the
following shareholder- approved transactions to which the Corporation is a
party:
A-1.
<PAGE> 47
(i) a merger or consolidation in which
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean Cisco Systems, Inc., a
California corporation, and its successors.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
I. ELIGIBLE DIRECTOR shall mean a non-employee Board
member eligible to participate in the Automatic Option Grant Program in
accordance with the eligibility provisions of Article One.
J. EMPLOYEE shall mean an individual who is in the
employ of the Corporation (or any Parent or Subsidiary), subject to the control
and direction of the employer entity as to both the work to be performed and the
manner and method of performance.
K. EXERCISE DATE shall mean the date on which the
Corporation shall have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be deemed
equal to the closing selling price per share of Common Stock on the
date in question, as such price is reported on the Nasdaq National
Market or any successor system. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
A-2.
<PAGE> 48
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be deemed equal to
the closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
M. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than thirty-five percent (35%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's shareholders which the Board does not recommend
such shareholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A)
a change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
target bonuses under any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
without the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner.
A-3.
<PAGE> 49
The foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of any Optionee or other person in the
Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant or Automatic Option Grant Program.
T. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
However, solely for purposes of the Automatic Option Grant Program, Permanent
Disability or Permanently Disabled shall mean the inability of the non-employee
Board member to perform his or her usual duties as a Board member by reason of
any medically determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more.
V. PLAN shall mean the Corporation's 1996 Stock Incentive Plan,
as set forth in this document.
W. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant Program with respect to one or
more classes of eligible persons, to the extent such entity is carrying out its
administrative functions under those programs with respect to the persons under
its jurisdiction.
A-4.
<PAGE> 50
X. PREDECESSOR PLAN shall mean the Corporation's pre-existing
1987 Stock Option Plan in effect immediately prior to the Plan Effective Date
hereunder.
Y. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
Z. SECONDARY COMMITTEE shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant Program with respect to eligible persons other than Section 16 Insiders.
AA. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AB. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
AC. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AD. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
A-5.
<PAGE> 51
AE. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
AF. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
AG. 10% SHAREHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-6.
<PAGE> 52
AMENDED AND RESTATED BYLAWS
OF
CISCO SYSTEMS, INC.
(AS AMENDED MARCH 10, 1985, DECEMBER 10, 1987,
OCTOBER 11, 1988 AND DECEMBER 20, 1989)
ARTICLE I - OFFICES
Section 1. The principal executive offices of cisco Systems, Inc. (the
"Corporation") shall be at such place inside or outside the State of California
as the Board of Directors may determine from time to time.
Section 2. The Corporation may also have offices at such other places
as the Board of Directors may from time to time designate, or as the business of
the Corporation may require.
ARTICLE II - SHAREHOLDERS' MEETINGS
Section 1. Annual Meetings. The annual meeting of the shareholders of
the Corporation for the election of directors to succeed those whose terms
expire and for the transaction of such other business as may properly come
before the meeting shall be held each year on the second Tuesday in December at
10:00 a.m. at the principal office of the Corporation, or at such other time and
place as may be determined by the Board of Directors, if not a legal holiday,
and if a legal holiday, then on the next succeeding business day at the same
hour and place. If the annual meeting of the shareholders be not held as herein
prescribed, the election of directors may be held at any meeting thereafter
called pursuant to these Bylaws.
<PAGE> 53
Section 2. Special Meetings. Special meetings of the shareholders, for
any purpose whatsoever, unless otherwise prescribed by statute, may be called at
any time by the Chairman of the Board, the President, or by the Board of
Directors, or by one or more shareholders holding not less than ten percent
(10%) of the voting power of the Corporation.
Section 3. Place. All meetings of the shareholders shall be at any
place within or without the State of California designated either by the Board
of Directors or by written consent of the holders of a majority of the shares
entitled to vote thereat, given either before or after the meeting. In the
absence of any such designation, shareholders' meetings shall be held at the
principal executive office of the Corporation.
Section 4. Notice. Notice of meetings of the shareholders of the
Corporation shall be given in writing to each shareholder entitled to vote,
either personally or by first-class mail (unless the Corporation has 500 or more
shareholders determined as provided by the California Corporations Code on the
record date for the meeting, in which case notice may be sent by third-class
mail) or other means of written communication, charges prepaid, addressed to the
shareholder at his address appearing on the books of the Corporation or given by
the shareholder to the Corporation for the purpose of notice. Notice of any such
meeting of shareholders shall be sent to each shareholder entitled thereto not
less than ten (10) days (or, if
2.
<PAGE> 54
sent by third-class mail, 30 days) nor more than 60 days before the meeting.
Said notice shall state the place, date and hour of the meeting and, (1) in the
case of special meetings, the general nature of the business to be transacted,
and no other business may be transacted, or (2) in the case of annual meetings,
those matters which the Board of Directors, at the time of the mailing of the
notice, intends to present for action by the shareholders, but subject to
Section 601(f) of the California Corporations Code any proper matter may be
presented at the meeting for shareholder action, and (3) in the case of any
meeting at which directors are to be elected, the names of the nominees intended
at the time of the mailing of the notice to be presented by management for
election.
Section 5. Adjourned Meetings. Any shareholders' meeting may
be adjourned from time to time by the vote of the holders of a majority of the
voting shares present at the meeting either in person or by proxy. Notice of any
adjourned meeting need not be given unless a meeting is adjourned for forty-five
(45) days or more from the date set for the original meeting.
Section 6. Quorum. The presence in person or by proxy of the
persons entitled to vote a majority of the shares entitled to vote at any
meeting constitutes a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough
3.
<PAGE> 55
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares, the holders
of which are either present in person or represented by proxy thereat, but no
other business may be transacted, except as provided above.
Section 7. Consent to Shareholder Action. Any action which may
be taken at any meeting of shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding shares having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted; provided, however, that (1) unless the consents of all shareholders
entitled to vote have been solicited in writing, notice of any shareholder
approval without a meeting by less than unanimous written consent shall be given
as required by the California Corporations Code, and (2) directors may not be
elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors.
Any written consent may be revoked by a writing
received by the Secretary of the Corporation prior to the time
4.
<PAGE> 56
that written consents of the number of shares required to authorize the proposed
action have been filed with the Secretary.
Section 8. Waiver of Notice. The transactions of any meeting
of shareholders, however called and noticed, and whenever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting, or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 9. Voting. The voting at all meetings of shareholders
need not be by ballot, but any qualified shareholder before the voting begins
may demand a stock vote whereupon such stock vote shall be taken by ballot, each
of which shall state the name of the shareholder voting and the number of shares
voted by such shareholder, and if such ballot be cast by a proxy, it shall also
state the name of such proxy.
At any meeting of the shareholders, every shareholder having
the right to vote shall be entitled to vote in person, or by proxy appointed in
a writing subscribed by such shareholder and bearing a date not more than eleven
(11) months prior to said meeting, unless the writing states that it is
irrevocable and satisfies Section 705(e) of the California Corporations Code, in
5.
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which event it is irrevocable for the period specified in said writing and said
Section 705(e).
Section 10. Record Dates. In the event the Board of Directors
fixes a day for the determination of shareholders of record entitled to vote as
provided in Section 1 of Article V of these Bylaws, then, subject to the
provisions of the General Corporation Law of the State of California, only
persons in whose name shares entitled to vote stand on the stock records of the
Corporation at the close of business on such day shall be entitled to vote.
If no record date is fixed:
The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held;
The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is given; and
The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating
6.
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thereto, or the sixtieth (60th) day prior to the date of such other action,
whichever is later.
A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board of Directors shall fix a new record date if the meeting
is adjourned for more than forty-five (45) days.
ARTICLE III - BOARD OF DIRECTORS
Section 1. Powers. Subject to any limitations in the Restated Articles
of Incorporation or these Amended and Restated Bylaws and to any provision of
the California Corporations Code requiring shareholder authorization or approval
for a particular action, the business and affairs of the Corporation shall be
managed and all corporate powers shall be exercised by, or under the direction
of, the Board of Directors. The Board of Directors may delegate the management
of the day-to-day operation of the business of the Corporation to a management
company or other person provided that the business and affairs of the
Corporation shall be managed and all corporate powers shall be exercised, under
the ultimate direction of the Board of Directors.
Section 2. Number and Qualification of Directors.
So long as this Corporation has two (2) or less shareholders, the
authorized number of directors of this Corporation shall be two (2). At such
time as this Corporation
7.
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has three (3) or more shareholders, the authorized number of directors of this
Corporation shall be not less than five (5) nor more than nine (9), the exact
number of directors to be fixed from time to time within such range by a duly
adopted resolution of the Board of Directors or shareholders.(1)
Directors shall hold office until the next annual meeting of
shareholders and until their respective successors are elected. If any such
annual meeting is not held, or the directors are not elected thereat, the
directors may be elected at any special meeting of shareholders held for that
purpose. Directors need not be shareholders.
Section 3. Regular Meetings. A regular annual meeting of the
Board of Directors shall be held without other notice than this Bylaw provision
immediately after, and at the same place as, the annual meeting of shareholders.
The Board of Directors may provide for other regular meetings from time to time
by resolution.
Section 4. Special Meetings. Special meetings of the
Board of Directors may be called at any time by the Chairman of
the Board, or the President or any Vice President, or the
Secretary or any two (2) directors. Written notice of the time
and place of all special meetings of the Board of Directors shall
be delivered personally or by telephone or telegraph to each
- --------
(1) As amended March 10, 1985, December 10, 1987, October 11, 1988 and
December 20, 1989.
8.
<PAGE> 60
director at least forty-eight (48) hours before the meeting, or sent to each
director by first-class mail, postage prepaid, at least four (4) days before the
meeting. Such notice need not specify the purpose of the meeting. Notice of any
meeting of the Board of Directors need not be given to any director who signs a
waiver of notice, whether before or after the meeting, or who attends the
meeting without protesting prior thereto or at its commencement, the lack of
notice to such director.
Section 5. Place of Meetings. Meetings of the Board of Directors may be
held at any place within or without the State of California, which has been
designated in the notice, or if not stated in the notice or there is no notice,
the principal executive office of the Corporation or as designated by the
resolution duly adopted by the Board of Directors.
Section 6. Participation by Telephone. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.
Section 7. Quorum. A quorum at all meetings of the Board of Directors
shall be a majority of the authorized directors. In the absence of a quorum a
majority of the directors present may adjourn any meeting to another time and
place. If a meeting is adjourned for more than twenty-four (24) hours, notice of
any adjournment to another time or place shall
9.
<PAGE> 61
be given prior to the time of the reconvened meeting to the directors who were
not present at the time of adjournment.
Section 8. Action at Meeting. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present is the act of the Board of Directors. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 9. Waiver of Notice. The transactions of any meeting of the
Board of Directors, however called and noticed or wherever held, are as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 10. Action Without Meeting. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent
10.
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shall have the same force and effect as a unanimous vote of such directors.
Section 11. Removal. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony.
The entire Board of Directors or any individual director may be removed
from office without cause by a vote of shareholders holding a majority of the
outstanding shares entitled to vote at an election of directors; provided,
however, that unless the entire Board is removed, no individual director may be
removed when the votes cast against removal, or not consenting in writing to
such removal, would be sufficient to elect such director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of the director's most
recent election were then being elected.
In the event an office of a director is so declared vacant or in case
the Board or any one or more directors be so removed, new directors may be
elected at the same meeting.
Section 12. Resignations. Any director may resign effective upon giving
written notice to the Chairman of the Board, the President, the Secretary or the
Board of Directors of the Corporation, unless the notice specifies a later time
for the
11.
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effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
Section 13. Vacancies. Except for a vacancy created by the removal of a
director, all vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until his successor is elected at an
annual, regular or special meeting of the shareholders. Vacancies created by the
removal of a director may be filled only by approval of the shareholders. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors. Any such election by written consent requires the consent of a
majority of the outstanding shares entitled to vote.
Section 14. Compensation. No stated salary shall be paid directors, as
such, for their services, but, by resolution of the Board of Directors, a fixed
sum and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of such Board; provided that nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
12.
<PAGE> 64
Section 15. Committees. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized number
of directors. Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have all the authority of the Board of Directors
in the management of the business and affairs of the Corporation, except with
respect to (a) the approval of any action requiring shareholders' approval or
approval of the outstanding shares, (b) the filling of vacancies on the Board or
any committee, (c) the fixing of compensation of directors for serving on the
Board or a committee, (d) the adoption, amendment or repeal of Bylaws, (e) the
amendment or repeal of any resolution of the Board which by its express terms is
not so amendable or repealable, (f) a distribution to shareholders, except at a
rate or in a periodic amount or within a price range determined by the Board,
and (g) the appointment of other committees of the Board or the members thereof.
13.
<PAGE> 65
ARTICLE IV - OFFICERS
Section 1. Number and Term. The officers of the Corporation shall be a
President, one or more Vice Presidents, a Secretary and a Chief Financial
Officer, all of which shall be chosen by the Board of Directors. The Corporation
may also have a Chairman of the Board who shall be chosen by the Board of
Directors. In addition, the Board of Directors may appoint such other officers
as may be deemed expedient for the proper conduct of the business of the
Corporation, each of whom shall have such authority and perform such duties as
the Board of Directors may from time to time determine. The officers to be
appointed by the Board of Directors shall be chosen annually at the regular
meeting of the Board of Directors held after the annual meeting of shareholders
and shall serve at the pleasure of the Board of Directors. If officers are not
chosen at such meeting of the Board of Directors, they shall be chosen as soon
thereafter as shall be convenient. Each officer shall hold office until his
successor shall have been duly chosen or until his removal or resignation.
Section 2. Inability to Act. In the case of absence or inability to act
of any officer of the Corporation and of any person herein authorized to act in
his place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer, or any director or other person
whom it may select.
14.
<PAGE> 66
Section 3. Removal and Resignation. Any officer chosen by the Board of
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of all the members of the Board of Directors.
Any officer chosen by the Board of Directors may resign at any time by
giving written notice of said resignation to the Corporation. Unless a different
time is specified therein, such resignation shall be effective upon its receipt
by the Chairman of the Board, the President, the Secretary or the Board of
Directors.
Section 4. Vacancies. A vacancy in any office because of any cause may
be filled by the Board of Directors for the unexpired portion of the term.
Section 5. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board.
Section 6. President. The President shall be the general manager and
chief executive officer of the Corporation, subject to the control of the Board
of Directors, and as such shall preside at all meetings of shareholders, shall
have general supervision of the affairs of the Corporation, shall sign or
countersign or authorize another officer to sign all certificates, contracts,
and other instruments of the Corporation as authorized by the Board of
Directors, shall make reports to the Board of Directors and shareholders, and
shall perform all
15.
<PAGE> 67
such other duties as are incident to such office or are properly required by the
Board of Directors.
Section 7. Vice President. In the absence of the President, or in the
event of such officer's death, disability or refusal to act, the Vice President,
or in the event there be more than one Vice President, the Vice Presidents in
the order designated at the time of their selection, or in the absence of any
such designation, then in the order of their selection, shall perform the duties
of President, and when so acting, shall have all the powers and be subject to
all restrictions upon the President. Each Vice President shall have such powers
and discharge such duties as may be assigned from time to time by the President
or by the Board of Directors.
Section 8. Secretary. The Secretary shall see that notices for all
meetings are given in accordance with the provisions of these Bylaws and as
required by law, shall keep minutes of all meetings, shall have charge of the
seal and the corporate books, and shall make such reports and perform such other
duties as are incident to such office, or as are properly required by the
President or by the Board of Directors.
The Assistant Secretary or the Assistant Secretaries, in the order of
their seniority, shall, in the absence or disability of the Secretary, or in the
event of such officer's refusal to act, perform the duties and exercise the
powers and
16.
<PAGE> 68
discharge such duties as may be assigned from time to time by the President or
by the Board of Directors.
Section 9. Chief Financial Officer. The Chief Financial Officer may
also be designated by the alternate title of "Treasurer." The Chief Financial
Officer shall have custody of all moneys and securities of the Corporation and
shall keep regular books of account. Such officer shall disburse the funds of
the Corporation in payment of the just demands against the Corporation, or as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors from time to time as
may be required of such officer, an account of all transactions as Chief
Financial Officer and of the financial condition of the Corporation. Such
officer shall perform all duties incident to such office or which are properly
required by the President or by the Board of Directors.
The Assistant Chief Financial Officer or the Assistant Chief Financial
Officers, in the order of their seniority, shall, in the absence or disability
of the Chief Financial Officer, or in the event of such officer's refusal to
act, perform the duties and exercise the powers of the Chief Financial Officer,
and shall have such powers and discharge such duties as may be assigned from
time to time by the President or by the Board of Directors.
Section 10. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no
17.
<PAGE> 69
officer shall be prevented from receiving such salary by reason of the fact that
such officer is also a director of the Corporation.
Section 11. Officers Holding More than One Office. Any two or more
offices may be held by the same person.
Section 12. Approval of Loans to Directors and Officers. The
Corporation may, upon the approval of the Board of Directors alone, make loans
of money or property to, or guarantee the obligations of, any director or
officer of the Corporation or its parent or subsidiary, or adopt an employee
benefit plan or plans authorizing such loans or guaranties provided that (i) the
Board of Directors determines that such a loan or guaranty or plan may
reasonably be expected to benefit the Corporation, (ii) the Corporation has
outstanding shares held of record by 100 or more persons (determined as provided
in Section 605 of the California Corporations Code) on the date of approval by
the Board of Directors, and (iii) the approval of the Board of Directors is by a
vote sufficient without counting the vote of any interested director or
directors.(2)
ARTICLE V - MISCELLANEOUS
Section 1. Record Date and Closing of Stock Books. The Board of
Directors may fix a time in the future as a record date for the determination of
the shareholders entitled to notice of and to vote at any meeting of
shareholders or entitled to
- --------
(2) As amended December 20, 1989.
18.
<PAGE> 70
receive payment of any dividend or distribution, or any allotment of rights, or
to exercise rights in respect to any other lawful action. The record date so
fixed shall not be more than sixty (60) nor less than ten (10) days prior to the
date of the meeting or event for the purposes of which it is fixed. When a
record date is so fixed, only shareholders of record at the close of business on
that date are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution, or allotment of rights, or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
Corporation after the record date.
The Board of Directors may close the books of the Corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders' meeting, the date when the
right to any dividend, distribution, or allotment of rights vests, or the
effective date of any change, conversion or exchange of shares.
Section 2. Certificates. Certificates of stock shall be issued in
numerical order and each shareholder shall be entitled to a certificate signed
in the name of the Corporation by the Chairman of the Board or the President or
a Vice President, and the Chief Financial Officer, the Secretary or an Assistant
Secretary, certifying to the number of shares owned by such shareholder. Any or
all of the signatures on the certificate may be facsimile. Prior to the due
presentment for
19.
<PAGE> 71
registration of transfer in the stock transfer book of the Corporation, the
registered owner shall be treated as the person exclusively entitled to vote, to
receive notifications and otherwise to exercise all the rights and powers of an
owner, except as expressly provided otherwise by the laws of the State of
California.
Section 3. Representation of Shares in Other Corporations. Shares of
other corporations standing in the name of this Corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
Corporation by the Chairman of the Board, the President or any Vice President
and the Chief Financial Officer or the Secretary or an Assistant Secretary.
Section 4. Fiscal Year. The fiscal year of the Corporation shall end on
the last day of July.
Section 5. Annual Reports. The Annual Report to shareholders, described
in the California Corporations Code, is expressly waived and dispensed with.
Section 6. Amendments. Bylaws may be adopted, amended, or repealed by
the vote or the written consent of shareholders entitled to exercise a majority
of the voting power of the Corporation. Subject to the right of shareholders to
adopt, amend, or repeal Bylaws, Bylaws may be adopted, amended, or repealed by
the Board of Directors, except that a Bylaw amendment thereof changing the
authorized number of directors may
20.
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be adopted by the Board of Directors only if these Bylaws permit an indefinite
number of directors and the Bylaw or amendment thereof adopted by the Board of
Directors changes the authorized number of directors within the limits
specified in these Bylaws.
Section 7. Indemnification of Corporate Agents.
(a) The Corporation shall indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts, actually and reasonably
incurred by such person by reason of such person's having been made or having
threatened to be made a party to a proceeding to the fullest extent permissible
by the provisions of Section 317 of the California Corporations Code. The terms
"agent," "proceeding" and "expenses" made in this Section 7 shall have the same
meaning as such terms in said Section 317.
(b) Expenses reasonably incurred by an agent of the Corporation in
defending a civil or criminal action, suit or proceeding by reason of the fact
that he or she is or was an agent of the Corporation (or was serving at the
Corporation's request as a director or officer of another Corporation) shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such agent to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Corporation as authorized by relevant sections
of the General Corporation Law of California.
21.
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(c) Notwithstanding the foregoing, the Corporation shall not be required
to advance such expenses to an agent who is party to an action, suit or
proceeding brought by the Corporation and approved by a majority of the Board
which alleges willful misappropriation of corporate assets by such agent,
wrongful disclosure of confidential information, or any other willful and
deliberate breach in bad faith of such agent's duty to the Corporation or its
stockholders.(3)
- --------
(3) As amended and restated December 10, 1987 and December 20,
1989.
22.
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CERTIFICATE OF
AMENDMENT TO THE BYLAWS OF
CISCO SYSTEMS, INC.
The undersigned, Secretary of Cisco Systems, Inc., hereby represents
that Article III, Section 2 of the Company's Bylaws was amended by the Board of
Directors of the Company on July 31, 1996. By such amendment, the first and
second sentences of Article III, Section 2 are to be deleted in their entirety
and replaced with the following sentence:
"The number of authorized directors shall be not less than
seven (7) nor more than thirteen (13), the exact number of directors to
be fixed from time to time within such range by a duly adopted
resolution of the Board of Directors or shareholders."
/s/ Larry R. Carter
-------------------------------------
Larry R. Carter
Secretary and Chief Financial Officer
<PAGE> 75
DETACH HERE
CISCO SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS, NOVEMBER 15, 1996
P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CISCO SYSTEMS, INC.
R
The undersigned revokes all previous proxies, acknowledges receipt of
O the notice of shareholders meeting to be held November 15, 1996 and the
proxy statement, and appoints John T. Chambers and Larry R. Carter or either
X of them the proxy of the undersigned, with full power of substitution, to
vote all shares of Common Stock of Cisco Systems, Inc. that the undersigned
Y is entitled to vote, either on his or her own behalf or on behalf of an
entity or entities, at the Annual Meeting of Shareholders of the Company to
be held at the Company's headquarters located at 255 W. Tasman Drive, San
Jose, California 95134-1706, on Friday, November 15, 1996 at 10:00 a.m., and
at any adjournment or postponement thereof, with the same force and effect
as the undersigned might or could do if personally present thereat. The
shares represented by this proxy shall be voted in the manner set forth on
the reverse side.
/ SEE REVERSE /
CONTINUED AND TO BE SIGNED ON REVERSE SIDE / SIDE /
<PAGE> 76
DETACH HERE
PLEASE MARK
/ X / VOTES AS IN
THIS EXAMPLE.
1. Election of all nominees listed below to the Board of Directors to serve
until the next Annual Meeting and until their successors have been duly elected
and qualified, except as noted (write the names, if any of nominees for whom
you withhold authority to vote)
Nominees: John T. Chambers, James F. Gibbons, Edward R. Kozel, Richard M.
Moley, John P. Morgridge, Robert L. Puette, Masayoshi Son, Donald T. Valentine,
Steven M. West.
FOR WITHHELD
/ / / /
/ /________________________________________ MARK HERE
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE FOR ADDRESS / /
CHANGE AND
NOTE BELOW
2. Proposal to approve the implementation of FOR AGAINST ABSTAIN
the 1996 Stock Incentive Plan. / / / / / /
3. Proposal to amend Section 2 of Article III FOR AGAINST ABSTAIN
of the Company's Amended and Restated / / / / / /
Bylaws to increase the minimum number of
directors to seven (7) and the maximum
number of directors to thirteen (13), with
the exact number of directors to be fixed
from time to time within such range by a
duly adopted resolution of the Board of
Directors or Shareholders.
4. Proposal to ratify the selection of Coopers FOR AGAINST ABSTAIN
& Lybrand L.L.P. as the Company's / / / / / /
independent accountants for the fiscal
year ending July 16, 1997.
5. Proposal to transact such other Business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
Please sign your name exactly as it appears hereon. If acting as attorney,
executor, trustee, or in other representative capacity, sign name and title.
Signature: Date:
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Signature: Date:
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